Asian currencies likely to stay strong

Asian currencies likely to stay strong

SINGAPORE (AFP): Asian currencies, which last week posted one of their best recoveries against the U.S. dollar following regional foreign exchange turmoil, are expected to maintain their upward trend this week, analysts said.

"In the coming week, the regional currencies could try even being stronger as the rupiah is turning a little bit positive," said Jacqueline Ong, regional economist with British financial house IDEA in Singapore.

The Indonesian rupiah, which recently has largely been holding back the recovery of the other currencies, rose by nearly 11 percent last week to 9,400 against the dollar on Friday.

It leapt past the 10,000 barrier after Indonesia and the International Monetary Fund (IMF) began negotiating again on a resumption of aid to the battered economy.

The IMF had earlier held back releasing a three-billion-dollar installment from a US$43-billion global aid package as it was critical of Jakarta's lack of progress on reforms.

"I suspect the markets are running out of patience on the rupiah, so certain players may want to test its resistance levels," Ong said.

A move to slap a five percent tax on foreign exchange transactions effective Monday could affect trading, analysts said.

Details of the tax structure had not been publicly announced but analysts say initial reports indicate that for every one million dollars purchased against the rupiah, funds will have to pay a tax of 50,000 dollars.

"The five percent tax could discourage dollar trades but it still remains vague as to whether inter-bank trading will be exempted from the tax," said Sani Hamid, analyst with U.S. research house Standard and Poor's MMS in Singapore.

Sani said inter-bank trading was the main source of speculation on the rupiah, which has dipped about 70 percent against the dollar since currency turmoil blew up in mid-1997 and wrecked the region.

While markets would keep an eye on IMF talks with Jakarta, they were also expected to closely monitor developments in Malaysia and the Philippines, which on Monday will free the peso from any trading band limitations.

Malaysia's Deputy Prime Minister Anwar Ibrahim is scheduled to announce new measures to stimulate the economy on Tuesday while the central Bank Negara will release its annual report Wednesday -- events which could affect ringgit play.

The ringgit rose by 3.6 percent last week to end at 3.6650.

"Malaysia is expected to be the fastest to recover from regional economic turmoil because it is saddled with the least debt among the battered economies. So, if Anwar could plug weaknesses in and further liberalize the financial sector, that may just do the trick," Sani of MMS said.

The Philippine peso, which pierced the 39 and 38 psychological levels against the dollar consecutively on Thursday and Friday, was also expected to rise further after gaining 4.8 percent to end at 37.85 last week.

"With the stabilizing forex (foreign exchange) market, the outlook is definitely brighter than three months ago," ANZ Investment Bank said of the peso in a market outlook report for this week.

But it cautioned that "from here on, the market will be impatient for more progress in strengthening the (Philippine) economy."

The Bankers' Association of the Philippines (BAP) is scheduled to scrap a volatility band on the peso's daily fluctuation Monday, reflecting confidence on peso stability.

The Thai baht and the South Korean won strengthened by nearly five percent each last week to 39.41 and 1,445 against the dollar while the Singapore dollar rose 0.6 percent to 1.6085 against the greenback.

ANZ Investment Bank said in the near term, the Singapore dollar could head towards 1.5500 if it breaks the 1.60 psychological barrier while the 3.5000 level remained a reasonably good resistance for the ringgit.

The Taiwan dollar was one of the few regional currencies to drop last week -- by 1.1 percent -- against the U.S. dollar, ending at 32.77 on Friday.